CPI January 2008ECONOMIC TRENDS
21 February 2008 Page 2 of 6Malaysia: Consumer Price Index (CPI)
J a n - 0 2 M a y - 0 2 S e p - 0 2 J a n - 0 3 M a y - 0 3 S e p - 0 3 J a n - 0 4 M a y - 0 4 S e p - 0 4 J a n - 0 5 M a y - 0 5 S e p - 0 5 J a n - 0 6 M a y - 0 6 S e p - 0 6 J a n - 0 7 M a y - 0 7 S e p - 0 7 J a n - 0 8
(5)05101520FoodCPITransport(RHS)Utilities, Housing & Other Fuels
Source: Department of Statistics
The Consumer Price Index (CPI, 2005=100) was up 2.3% YoY in January,
little changed from the 10-month high of 2.4% YoY in December, and slightlybelow our and consensus expectations of 2.4% YoY. Overall, monthly inflationrate has been inching up from the recent low of 1.4% YoY in May-June 2007.
Slower increases in food prices of 3.9% YoY (Dec: +4.3% YoY) helpedkeep the inflation rate relatively stable last month, offsetting fasterincreases in other prices of good and services,
namely “alcoholicbeverages and tobacco” (9.0% YoY vs Dec: 8.8% YoY) ), “restaurants andhotels” (6.7% YoY vs Dec: +6.1% YoY), “miscellaneous goods & services”(2.9% YoY vs Dec: +1.9% YoY), “health” (1.8% YoY vs Dec: 1.6% YoY),“education” (1.5% YoY vs Dec: +1.1% YoY) and “housing, water, electricity,gas and other fuels” (1.2% YoY vs Dec: 1.1% YoY). Prices at “restaurants andhotels” accelerated last month for the ninth consecutive month, reflecting acombination of higher costs of food, beverages and fuel/energy (especiallycooking gas which has doubled over two years) as well as higher room rates,which were passed through to final consumers amid strong demand thanks tothe robust growth in domestic consumer spending plus the strong increase intourist arrivals as “Visit Malaysia Year” was extended to 31
This year, we expect the inflation rate to quicken to 3.4% from 2% lastyear, mainly due to the expectation that the Government is going toresume cutting fuel/energy subsidies
given the steady uptrend in crude oilprices since the last fuel price hike in February 2006. We expect theGovernment to resume cutting fuel subsidies by the middle of this year. Weestimate that fuel subsidies account for as much as 70% of the Government’stotal annual spending on subsidies, which is budgeted to drop to RM10.2b thisyear from the estimated RM12.2b last year (2006: RM10.1b).
We are assuming a 20% increase in fuel prices by mid-2008, which
knock-on effect of prices of goods and services, especially on the costs of public and private transportation costs
(taxis, buses, lorries, ferries), ontop of the 7.7%-60% increases in toll rates for some highways that came intoeffect on 1 January 2008. Furthermore, there is also a strong likelihood of areview in Petronas’ gas price, currently fixed at RM6.40 per mmbtu since 1997,with impact on Tenaga’s power tariff and energy costs of many industries.
In addition, high commodity prices are keeping the pressure on foodprices,
as reflected by the string of major food price increases last year andrecent statements by fast food chain operators KFC and Pizza Hut that theywill raise prices this year in response to escalating raw material costs, includingcrude oil, corn and soyabean.